To qualify as a qualified dividend, which of the following is true?

To qualify as a qualified dividend, it is essential that the dividend meets the holding period requirement. This means that the shareholder must have held the underlying stock for a specific period before and after the dividend is paid to ensure that the dividend is subject to the lower federal income tax rates associated with qualified dividends. Generally, this holding period is at least 60 days for common stock and requires that the stock be held for more than 120 days surrounding the ex-dividend date for preferred stock.

Meeting this holding period is crucial because it helps differentiate between dividends that are part of a passive investment versus those earned on an investment held as part of a short-term trading strategy. This distinction is important for tax purposes, as qualified dividends are taxed at a lower rate than ordinary income, while dividends paid on stocks held for a shorter duration may be taxed at the higher ordinary income rates.

The other options do not accurately represent the criteria for qualified dividends. For instance, dividends are not limited to those from any specific type of corporation or to amounts exceeding $1,000. Additionally, dividends paid by public companies are the main focus for qualified dividend classification, rather than limitations to private companies.